March 14, 2024

Time to acknowledge economic value of biodiversity

What gets measured gets valued

Does biodiversity have a quantifiable economic value?  

Biodiversity is defined as the diversity of life. Historically biodiversity has been undervalued, if not overlooked, in economic considerations. For most of our history, there has been an abundance of diverse life, with ample resources for humanity’s requirements. Biodiversity was innate to the economic system, but it could be ignored in the decision-making process as it was perceived to be limitless. In recent decades, there has been a notable shift in recognising the value of biodiversity, driven by concerns over significant biodiversity changes resulting from human activity.

In 2019, the British Treasury commissioned a review on the economics of biodiversity. This review aimed to provide a quantifiable body of evidence that would account for the value human populations gain from biodiversity. It goes beyond the ‘intrinsic’ value of biodiversity by attempting to provide a measurable economic value. This enables the true economic benefits of biodiversity to be accounted for, which allows cost-benefit analyses to inform decision making. 

As the review’s lead, Professor Partha Dasgupta had some controversial methodological decisions to make. He chose not to focus on the microeconomic value of biodiversity; for example, 60 percent of new cancer drugs in the 1990s were a result of studying fungi. Instead, Dasgupta focused on the macroeconomic value of biodiversity. 

What value does biodiversity provide humanity, as an integrated part of the global economy?

The macroeconomic focus of the review led to one of its core arguments. Biodiversity is a component of our natural capital. Capital can be defined as resources used to produce value in the economy. A classic example is labour; human labour is used to produce other goods and services. If there is less labour available, production will decrease. 

Natural capital refers to the value of all biological and natural resources that have economic value by providing goods and services to humankind. Therefore, if there is less natural capital available, the productive potential of humanity will decrease.

The human economy is embedded in nature

As biodiversity decreases, there will be a clear and measurable decrease in economic potential. Living organisms have given humanity immeasurable value throughout history, from enabling subsistence to providing building materials, medicines, and even petroleum. 

The review measures biodiversity by employing a methodology based on Net Primary Product (NPP). NPP represents the total newly produced biomass from primary producers (plants, algae, and bacteria) that are the building blocks for ecosystems and communities. 

The review has some confronting conclusions for New Zealand

Currently, human activity has caused NPP demand to be 170 percent of supply. This is not sustainable. The imperative for humanity, therefore, is to develop an economic system that can maintain a steady state where the demand for NPP, and the resulting ecosystems, are equal to the supply of NPP. The review recommended bridging the 70 percent gap in two ways.

Firstly, passive investment is required. This is the simplistic recommendation, which entails just giving nature a chance to recover. As NPP is renewable, allowing some breathing room would go a long way towards maintaining and restoring the biodiversity of the natural environment. New Zealand is quite good at this, as demonstrated by our marine reserves.

However, the second recommendation is a harder pill to swallow. Active investment is required in as many segments as possible of the natural environment. Plans, such as the Carbon Credit scheme, are imperative to encourage active investment in the restoration of the natural environment. A monoculture pine forest may not do a huge amount for biodiversity, but it is better than a parking lot and decreases the demand on existing ecosystems.